New government policy initiatives aim to reverse the trend of declining investment in Britain’s road network. This column asks whether such investment generates economic benefits, either locally or nationally. Places with improved accessibility from new major roads over 1998-2008 experienced increases in the number of local firms and, consequently, higher local employment. At the same time, businesses already operating in these areas shed workers while maintaining existing levels of output, implying higher labour productivity.

To carry out this analysis, we linked administrative data on nearly all individual businesses in Britain from 1998 to 2008, to information on the location of the 31 major road construction schemes that opened nationwide over this period. These schemes were all improvements to the strategic road network (trunk A-roads and motorways). We then used regression analysis to find out whether places and firms that experienced potential road travel time reductions as a result of these new roads saw benefits in terms of employment, number of businesses, output, and other economic outcomes.

There are major challenges when evaluating the economic effects of road construction. The first one is how to capture the effect of new roads, which we do using changes in a continuous index of road network accessibility, calculated at a small geographical scale (electoral ward).2 These accessibility changes are computed from shortest path routes along the major road network. When new links are added to the network, optimal travel times decrease and accessibility increases, but by different amounts according to where a place is in relation to the existing road network and the new road links.

This index measures how easy it is to get from place to all other destinations by road. Figures 1 and 2 illustrate the spatial relationship between road schemes and these accessibility increases. Figure 1 shows new roads and major improvements. Figure 2 shows accessibility improvements between 1998 and 2008 for our main estimation sample (wards within 1-20 km of new links).2

A second challenge to estimation of the causal impact of road network changes on firm outcomes is that roads may be purposefully built to meet demand in places where productivity is growing or to try to stimulate growth in places where productivity is falling. This would lead us to infer that transport improvements drive economic performance, when the causality is the other way round.

To address this problem, we exploit the geographical detail in our data and estimate from the changes in accessibility experienced by wards that are very close to new road projects (within 1-20 km in the main results). This variation amongst local wards is an unintended consequence of improvements to the strategic road network.

Improvements to the strategic road network are intended to improve overall network performance and are not aimed at supporting economic development in places close to the project. We can therefore treat this variation in local accessibility as, in effect, randomly generated. Restricting our attention to areas close to schemes results in little loss of generality relative to comparison across the whole country, because most of the variation in accessibility generated by relatively small scale road transport improvements occurs in areas close to new schemes. Our aim then is to infer the more general effects of changes in accessibility from these transport-induced changes occurring at a small geographical level.

The decline of manufacturing employment in industrialised countries has hit some cities hard. This column looks at perhaps the best-known case – Detroit – where residents have deserted the neighbourhoods closest to the central business district in favour of the suburbs, despite the longer commute. Redeveloping these areas requires coordination between multiple developers, residents, and the city governments that facilitate permits and public services. The authors propose the introduction of ‘development guarantees’ to ease the coordination problems.

I don’t know but I guess a good example could be drawn from Mumbai. Keeping the highly important and sensitive issues of politics and land grabbing aside, the cotton mill areas of Parel have been developed/reconverted into an unimaginable urban space. Yes, most are ugly designs but in a space constrained city has provided some relief (though some may say it has only led to more problems!). This redevelopment too must have required “coordination between multiple developers, residents, and the city governments that facilitate permits and public services”.

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M Asher, S Sheikh and V Ramakrishnan have a piece on this shift of ownership.

How a large transport sector PPP (Public Private Partnership) in UK, a high-income country, with a reputation for good public financial management, came to be restructured from a PPP to full public sector control in less than a decade, and the implications this episode holds for India, a middle-income country.

Interesting bit.

Infra is not just an ownership thing as we like to assume. Infact most infra worldwide has been built by public sector only. What matters more is the microeconomics and incentives around the sector. One has to think deeper through the contracts involved, pricing, scale and so on.

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Personally, I think IDFC was made into a bank a wee bit too early. Given how China and even India is pushing new development financial institutions to fund infra, we might have to soon look at domestic front too. We actually might need a few more IDFCs in future. Anyways, nothing can be done now. In finance, we have to go in circles and keep pulling out old wine in new bottle.

In this interview, IDFC chief Rajiv Lall explains how the transition is happening. Interestingly, the bank starts big from MP of all places:

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For people who have some association with Bangalore and have spent time in the city in the past, revisiting the city keeps giving them new shocks over its decline. For those living in it for long, have got used to the decline and can only deplore.

Rahul Jacob has a similar story as well. He used to visit the city as his grandparents lived there. He just cannot imagine the decline since then. He begins citing PM Nehru’s words on the city:

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Aravind Unni an architect working with YUVA (Youth for Unity & Voluntary Action) in Mumbai has a superb article on this.

Colombia’s social urbanism and inclusive transportation projects have left a lasting impression on urban planning in the global south. The author explains how urban planning got democratised in Colombia and why India is still far behind.

It has some good pictures as well on how Colombia shaped its urban agenda without a lot of noise. Countries after countries sort their policies and issues but none make the noise as we in India do. It is a different story that despite all the noise we are not able to do even half of what we set out to do..

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Picture is worth 1000 words and economists should use them to make a point as well.

S. Ananth, an independent researcher from Vijaywada has this superb pictorial article on the topic:

The announcement by the Andhra Pradesh Chief Minister Chandrababu Naidu that the new capital will be located in and around the village of Thullur, about 25 km from Vijayawada, has dramatically altered the socio-economic dynamics of these sleepy villages. Until the announcement these villages were considered to be little more than backwaters of the main city. The following photos attempt to highlight the rapid pace of change over the past five months.

The mainstay of these villages was agriculture and petty commodity production where they grow vegetables, fruits like guava and bananas, paddy, sugarcane, cotton and in a few cases flowers. In the more fertile villages, vegetables are the most important corps. Abundant supply of water is an added advantage: in certain areas, groundwater is available at about 50 feet. During monsoon, groundwater is available at about 30 feet. Earnings can be as high as Rs 1.5 lakhs per annum (in the case of those growing vegetables). High level of investment in education is a marked feature in all the villages.

In almost every village, a common way to bide time is to gather at a common point (usually near a temple or panchayat office) and “discuss” everything under the sun. One such gathering of elderly people in Thullur village.

Locals believe that the present village housing blocks will not be brought under land pooling for the new capital. Residents of Thullur village point out that the chief minister has promised to “develop” their common areas in a different way: regeneration of the lakes, addition of walking tracks around the lakes, development of parks, temples, etc. One of them was confident that each village will have an “outer perimeter” beyond which land and development of the capital will be taken up – creating pockets of the “old village” within the “modern” capital.

The announcement of the capital in the region has literally shaken the area from its stupor. The pickup in construction activity immediately catches a traveller’s eye. The road from Vijayawada to Thullur village indicates the rush to construct shops and apartments, especially among villages that are close to Vijayawada city. A large number of apartments are coming up on the road from Vijayawada to AP capital region villages. Almost all the apartments advertise their bank approval prominently. It is indicative of the manner in which information asymmetry works or is perceived to work. High cost of apartments means that buying agricultural land is still attractive. Unlike in other cities, a luxury apartment means one that has a large carpet area with a few fittings thrown in as a perk. Most of these apartments now cost three times the cost in early 2013.

Before any development, housing prices shoot through the roof.

Cases of land grabbing and cheating have sprung up as well:

A visit to these villages seems to indicate that real estate and ancillary service industries are the only business that interests people – at least, those willing to venture into a business. Everything seemingly revolves around land: people are either keen to buy land, sell land, mediate between the buyers and sellers or offer some service to those trying to fix a deal. The attempt to make a quick buck from real-estate speculation seems to encompass all classes, castes and overshadows everything else. The urgency to close a deal is indicative of the thinking that the good times are unlikely to last long.

A discernible feature is that of roadside kiosks that have now taken to real estate broking because it is a more profitable occupation. These include kiosks that in the past served as a tailoring shop, dual-purpose units like a motorcycle repair kiosk that doubles as a real estate broking office, a bicycle repair kiosk to one that stored agricultural equipment.

The business logic is impeccable and incredibly simple: even if one land deal can be intermediated and the transaction completed, then the commission earned (about 1% of the deal value) is often more than the incomes earned by most over the past one year. In other cases, the obsession of the region’s middle classes for “extra-income” with little or no “investment” other than their labour is satiated. In most of cases, it only requires drawing on one’s social capital and social networks.

The influx of brokers from outside the villages is easily discernible. A year ago, most of these villages had only the occasional visitor – mostly connected with the agricultural commodity trade. Most of these brokers are from neighbouring cities like Guntur and Vijayawada. Residents blame these outsiders for all the fraudulent land transactions in their villages

An abnormal rise in land prices have resulted in instances of land grabbing. Land grabbing or threats related to purchase and sale of land was unheard of in the region. There were the occasional civil disputes that would snake their way through the courts. A rare dispute related to completing a land transaction was usually “settled” through the informal arbitration mechanism, which usually consisted of the local elite presiding and mediating the two sides – the anthropological equivalent of the “big man” or the “elder”. However, the influx of outsiders means that the “local big men” or “elders” do not control the social levers that they did in the past and are helpless to arbitrate in any dispute.

The picture below is a flexi-banner notice issued by the Superintendent of Police at a bus shelter warning people about and against land grabbing. Of course, a real estate agent uses that as a good place to market himself and his business..

It seems higher accidents are seen on Wednesdays (803 in 2014 ) and Saturdays (773 in 2014 down from 797 in 2013). In terms of daytime, max accidents happen from12 PM to 9 Pm (the article says from 12 to 5 but we see higher accidents between 6-9 PM as well):

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He says the govts have become way too cautious towards providing guarantees for large mega infra projects. Well, there is one thing of providing guarantees carelessly and other thing of providing them with care and planning. He suggests second such kind of guarantee:

The blogger has always wondered why we don’t go for Mumbai Local train system in Indian cities instead of fancy metro? Mumbai local may not be as elegant but carries far larger number of passengers. Moreover, in some cities the existing train lines could be used to atleast connect some points in the city. This will save both costs and time.

Anyways, here is an interesting paper by experts in the matter making a case for surface rail. It is written by M Ravibabu of Ministry of Railways and V Phani Sree of Jawaharlal Nehru Architecture and Fine Arts University:

The latest public-private partnership project to fall through, the Delhi Airport Metro Express, brings to light flaws in the concession agreement between the public and private parties. Improper risk sharing and aggressive bidding, coupled with the application of the jugaad principle, have led to contractual disputes resulting in the cancellation of the partnership.

In most infrastructure PPP projects, the key reasons for failure are nearly similar- overbidding, overestimation of traffic flows and confusion over responsibilities. These reasons were responsible for failure of Delhi Metro Airport line too.

Sylvain Leduc and Daniel Wilson summarise their recent work on impact of highway program under ARRA (American Recovery and Reinvestment Act). The states which implemented ARRA fundinding for highways showed multiplier of 2!.

There was a lot of media coverage as these two airports were privatised.

Prateek Kuhad (an intern in the Secretariat for Infrastructure, Planning Commission during July-August 2010) writes this superb case study. It was quite a thriller with bidders going in and out of the final list and legal interventions from variety of players. The final outcome was that the bidding process was fairer and did not receive any criticism from stakeholders: